Presentation to WECC Seams Issues & Market Issues Subcommittees May 16, 2013

1. Development of CAISO / PacifiCorpEnergy Imbalance MarketBriefing on Design Straw Proposal and Issue Paper Presentation to WECC Seams Issues & Market Issues Subcommittees May 16, 2013 Jim Price, Senior Advisor, Market Development & Analysis, CAISO Khaled Abdul-Rahman, Executive Director, Power Systems & Smart Grid Technology, CAISO

2. Objective of today’s briefing • Common understanding of CAISO/PacifiCorp EIM proposal and how it overlays existing CAISO market • Identify and understand interactions with other business practices in Western Interconnection, other than issues that will need to be resolved through the CAISO and PacifiCorp stakeholder processes

3. EIM stakeholder process proceeds in parallel with PacifiCorp implementation Implementation agreement 2013 2014 FERC review Implementation work System testing market simulation Board authorization 3/20/2013 Filing 4/30/2013 FERC acceptance Process Merger Go live 10/1/2014 tariff language FERC review EIM stakeholder process Board authorization 11/8/2013 Filing FERC acceptance Stakeholder meetings: 4/11/2013 – Folsom 6/6/2013 – Folsom 7/9/2013 – Phoenix 8/20/2013 – Portland 9/30/2013 – Folsom

4. The ISO offers comprehensive training programs • Welcome to the CAISO • Introduction to CAISO Markets • Market Transactions • EIM specific training is under development Training calendar - http://www.caiso.com/participate/Pages/Training/default.aspx Contact us - markettraining@caiso.com

5. March 2012, CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM) • No critical mass required – each participant can enter EIM when ready • Preserves participants’ autonomy and current practices • Balancing authorities balance and provide their own ancillary services • Balancing authorities can trade bilaterally • Participants retain all physical scheduling rights • Flexible modes of participation are available BAA 1 BAA 2 BAA 3

6. CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM) network modeling transmission monitoring BAAs bidding/self-scheduling intra-hour dispatch settlements

7. Benefits of Energy Imbalance Market • Leverages existing CAISO market • Enhances reliability through improved situational awareness in CAISO and EIM footprint • Captures the benefits of geographical diversity of load and resources • Potentially reduces reserve requirements • Provides easy entry/exit for EIM participation

8. Design Straw Proposal

9. Review of EIM design straw proposal • Real-Time Market Processes • Hour-Ahead (HA) • Real Time Unit Commitment (RTUC) • Real Time Dispatch (RTD) • Market Input Data • Market Optimization • Market Results • System Operations • Settlement and Accounting • Other

10. Energy Imbalance Market Definitions EIM Entity is a balancing authority area that is enabling EIM to occur in their area. By enabling EIM, load and generation imbalances within the balancing authority will settle through the EIM. EIM Participant is a resource within the EIM Entity represented by a Scheduling Coordinator that has voluntarily elected to economically participate in the EIM.

11. FERC Order No. 764 introduces financially binding 15-minute market to real-time market design CAISO EIM Day Ahead Schedule Adjusted Base Schedule 15-Minute Schedule 15-Minute Schedule Real-Time Dispatch Real-Time Dispatch

12. Real-Time Market Processes • Hour Ahead Process • CAISO accept block intertie transactions • 15-Minute Market: Real-Time Unit Commitment (RTUC) • CAISO unit commitment, incremental AS, energy schedules • EIM energy schedule changes from adjusted base schedule • 5-Minute: Real-Time Dispatch (RTD) • Energy dispatch within CAISO and EIM footprint

13. Market Input Data • As needed • Resource operational characteristics • Network model topology • Static contingencies observed • Prior to operating hour (T-75 minutes) • Economic bids and hourly base schedules • Ongoing • Transmission and generation outages • 15-minute base schedules • Load and VER forecasts • Dynamic contingency list • Actual ETC/ATC scheduling limits and ETC uses

14. Hourly process for real-time market T-75: Real-Time Bid Submission Deadline T-45: Results from Hourly Process to Accept Block Schedules Published T-37.5: Start of Market 1 Optimization T-20: Intertie Hourly Transmission Profile and Energy Schedule for Market 1 E-Tag Deadline T Market 1 Market 2 Market 3 Market 4 T = Start of the Hour No hourly financially binding schedules in real-time

15. 15-Minute Market Timeline under FERC Order No. 764 T-22.5: Market 2 Optimization Starts T-7.5: Market 2 Energy Schedule Awards T-5: Market 2 Energy Schedule E-Tag Deadline Financially Binding 20 Minutes T Market 2 T-22.5: Self Schedule Changes for Market 2 37.5 Minutes T = Start of the Hour • Honor intra-hour 20 minute e-Tag submission to avoid seams issues

16. RTD Market Timeline under FERC Order 764 T+15 Market 1 Market 2 Financially Binding T+15 RTD 2 RTD 3 RTD 4 RTD 5 RTD 6 7.5 Min T+12.5: RTD 4 Dispatch, RTD 5 Optimization Begins T+7.5: RTD 4 Optimization Starts T = Start of the Hour • No changes to RTD 5-minute dispatch • RTD provides operational instruction to all generation and demand response resources

17. Establishment of Load Aggregation Points (LAP) • EIM Entity defines the LAPs within its BAA • For example, internal to the CAISO LAPs are defined by utility service territories • The number of LAPs must be weighed against the availability of multiple granular load forecasts • CAISO is responsible for determining Load Distribution Factors (LDFs) with its state estimator • CAISO uses LDFs to distribute LAP forecast to individual nodes within the network model • CAISO publishes LDFs used in the day-ahead market three days after the trade date • CAISO will not communicate load forecast at LDF granularity to the EIM Entity

18. Load forecasting • Load forecast by LAP should be net of “behind the meter” generation • Two options for load forecast for establishing base schedule: • Use ISO forecast • Use EIM Participant forecast, but subject to over/under scheduling charges when errors exceed 4% threshold

19. Base schedule should be balanced prior to start of real-time market = Load forecast from prior slide Resource plans: base schedules • Self-scheduled resources • Intertie schedules • Base generation schedules Resource plans also include: • Ancillary services reservations protected from dispatch • Operational characteristics (e.g., ramp rate) • Economic Bids Base schedule must be balanced or they will be adjusted prior to start of EIM.

20. Establishment of balanced and feasible adjusted base schedule (1 of 2) • Base schedules must consider transmission losses and be free from congestion within the EIM Entity • CAISO will perform an AC optimal power flow (ACOPF) on base schedule • The objective function will minimize the MW re-dispatch necessary to resolve congestion, not based on economics • Only resources that have economic bids can be re-dispatched • The changes to base schedules are not settled in EIM, but become the baseline to measure imbalances

21. Establishment of balanced and feasible adjusted base schedule (2 of 2) • CAISO will provide feedback on schedules up to the binding 15-minute market • ACOPF with net interchange fixed run to set the adjusted base schedule • 15-minute market • Changes to advisory schedules result in 15-minute market awards • 5-minute market • Uses the awarded 15-minute schedule from the 15-minute market as starting point

22. Market Optimization uses the economic bids submitted at T-75 minutes • New: 15-minute process under FERC Order No. 764 • Multi-interval Security Constrained Unit Commitment • Runs every 15 minutes with 15-minute interval granularity • Intra-hour market’s schedules maintain balance: change in generation matches interchange • Imbalance energy is the difference between adjusted base schedule and 15-minute schedule

23. Market Optimization uses the economic bids submitted at T-75 minutes • 5-minute dispatch process • Multi-interval Security Constrained Economic Commitment • Runs every 5 minutes with 5-minute interval granularity • Imbalance energy is the difference between 15-minute schedule and 5-minute dispatch • LMP marginal cost of congestion component reflects congestion contribution from binding network constraints

24. EIM Entity identifies resource constraints to address reliability issues which cannot be modeled • CAISO will enforce reliability constraint within EIM area until the dispatch is reflected in the base schedule • CAISO will not issue exceptional dispatch instructions to EIM Entity resources • Any resource constraint for reliability will be settled at the EIM LMP

25. Market Results (1 of 2) • 15-minute adjusted base schedules will be published to SCs through CAISO Market Results Interface (CMRI) • 15-minute energy schedules will be published to SCs through CMRI • 5-minute dispatch instructions will be communicated to the EIM Entity and the SCs • Net scheduled interchange will change every five minutes through the Dynamic Schedule to ensure AGC control accuracy for the CAISO and EIM Entity

26. Market Results (2 of 2) • Locational marginal prices for 15-minute market and RTD will be published on OASIS for all nodes and LAPs. • Binding transmission constraints and shadow prices will be published on OASIS • Additional market data that requires an NDA is published on CMRI

27. EIM System Operations (1 of 3) • EIM Entity responsible for meeting Ancillary Services requirements per NERC and WECC • Reserve sharing schedules • EIM Entity is responsible for their share of DCS compliance • EIM Entity deploys operating reserves and regulation in conformance with NERC and WECC policies • If reserves are dispatched, they will be subject to EIM imbalance settlement until reflected in the adjusted base schedule • Capacity to meet reserve sharing obligations is included in the resource plans used for base schedules. The capacity is protected for dispatch through EIM.

28. EIM System Operations (2 of 3) • CAISO will manage congestion in EIM by automatically activating constraints, before flows approach capacity • This allows the EIM dispatch to try and resolve the congestion • Alerts the EIM Entity that they may be required to initiate UFMP • Once activated, constraint will be enforced to maintain flows below the limit • EIM will coordinate with WECC’s Unscheduled Flow Mitigation Procedure (UFMP) and Enhanced Curtailment Calculator (ECC) • If EIM Entity initiates UFMP, CAISO will reflect the affected schedules in EIM dispatch, and enforce constraint limits as requested by RC.

29. EIM System Operations (3 of 3) • EIM Entity responsible for dispatching contingency reserves • CAISO and EIM Entity address respective shortfalls through regulation or other procedures during scarcity • EIM Entity coordinates Load curtailment with its UDCs. • In the event of a market disruption, the CAISO will enforce a net interchange constraint to decouple the BAA • EIM Entity is responsible for managing dispatch in the event communication is lost with CAISO

30. EIM Settlement and Accounting (1 of 4) • Instructed imbalance energy settled in two tiers at the relevant LMP: • 15-minute instructed imbalance energy; and, • 5-minute instructed imbalance energy • Uninstructed imbalance energy treatment based upon meter granularity • Generation, participating load, and dynamic resources that are metered in 5-minute intervals settle at relevant interval LMP • Non-participating Load settles at the volumetric hourly weighted average LMP for the DLAP based upon the difference between the actual and the load forecast used

31. EIM Settlement and Accounting (2 of 4) • Unaccounted for Energy • Net energy delivered into UDC adjusted for service losses • EIM Entities need to define UFE service areas within footprint • Inadvertent Energy • EIM Entity responsible for tracking and administering payment via WECC process • CAISO will maintain a dynamic schedule to track energy between EIM Entities and CAISO • The hourly energy will be updated on the e-Tag within 60 minutes of the end of the operating hour • Settlement Metering is required for Generators. Options: • CAISO Metered Entity • Scheduling Coordinator Metered Entity

32. EIM Settlement and Accounting (3 of 4) • Interchange Meter Data • E-Tag information will be deemed delivered for settlement • Forecasting Services • CAISO Load forecast is included in Administrative Rate • VER forecasting available for $0.10 per MWh • CAISO Payment Calendar will be the same for EIM • Neutrality • Rounding adjustments apply on a 5-minute basis

33. EIM Settlement and Accounting (4 of 4) • Administrative Costs • Cost effective for October 2014-December 2014 • CAISO GMC and Cost of Service Study will be updated for the rates starting 2015 • Startup costs equal $0.03 times the total annual energy usage • Administrative rate if $0.19 per MWh volume as calculated by: • Generation = MAX (5% Gross Generation, Generation Imbalance Energy: 5-minute vs. 15-minute) • Load = MAX (5% Gross Load, Load Imbalance Energy: 5-minute vs. 15-minute) • Dispute resolution is through Customer Inquiry, Dispute and Information (CIDI)

34. Other design items • Market monitoring provided by CAISO • Third party arrangements between EIM Entity and EIM Participants can be made as necessary • All EIM Entities and EIM Participants must fulfill regulatory compliance obligations • EIM Participants responsible for following EIM tariff related to the Enforcement Protocol

35. Issues to Resolve

36. Stakeholder process will address following EIM policy issues • Market rule oversight • Market rule structure • Transmission service • Process for new EIM entities joining • Uplift allocations • Greenhouse gas accounting • Others identified through stakeholder process

37. Market Rule Oversight and Rule Structure (1 of 2) • Initial EIM implementation under existing CAISO market rule oversight • EIM oversight may evolve over time based on stakeholder feedback • Immediate options bounded by current governance • Further changes require additional consideration • EIM rules proposed to be a discrete part of CAISO tariff

38. Market Rule Oversight and Rule Structure (2 of 2) • Market Administrator Model • Oversight of EIM rules under the CAISO Board • Possible EIM Advisory Committee • Market Operator Model • Independent body from the current CAISO Board • Presents risks to a low incremental EIM cost • Hybrid Model • Contract enhancements to EIM operator relationship • Can be considered as a future arrangement

39. Transmission Service • Since initial transfer capability between CAISO and PacifiCorp will be limited, CAISO proposes no charge for as-available transmission • EIM may adopt transmission rates for EIM transfers, subject to agreed upon limits establish in the EIM design

40. Uplift and Cost Allocation • Uplifts and cost allocation will follow published cost allocation guiding principles • EIM design will seek to minimize comingled costs to the extent possible. • Based upon EIM design, allocations of real-time costs made to Measured Demand (Metered Demand + Exports) may need to be revised

41. The cost allocation guiding principles consist of seven elements • Causation • Comparable treatment • Accurate price signals • Incentivize behavior • Manageable • Synchronized • Rational

42. CAISO committed to ensuring EIM design will properly account for GHG costs • Entities that import energy to California have obligation to surrender compliance instruments to CARB • The net incremental transfer to CAISO from EIM will be tracked through e-Tag for dynamic schedules • The market optimization will consider GHG costs

43. Process for New EIM Entities • Encourage interested parties to engage as early as possible • For 2014, assessment based upon system complexity and timing of commitment • Anticipate future implementations will occur on an annual commitment cycle with 12-18 month lead time • Implementation requires significant network modeling changes • Must align with CAISO spring and fall software release cycle • New entrants pay start up fee ($0.03 per MWh Demand) • Payment will be established through implementation agreement filed with FERC